Montenegrin Government Opens Talks with Qatari Diar to Save €350m Project in Lustica

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Podgorica has opened talks with Qatari Diar after the Qatari property developer announced it was dropping a €350m investment on Montenegro's Adriatic coast. The Beyond Horizons resort was one of a handful of major investment projects expected to boost the Montenegrin economy as it sees a drop in metals exports and an expected fall in Russian investment.

Qatari Diar, which was set up by the Qatar Investment Authority had been planning to start construction of the resort in September or October. On the coast made famous by high-end developments like the Porto Montenegro super-yacht marina, Beyond Horizons was to include a five-star hotel and several mixed use buildings on 34,000 square metres of land, according to the company's website.

However, in August, the Qatari investor said in a statement published by Balkan Insight that "problems in acquiring land ownership currently make this project unsustainable." Montenegro's Minister of Sustainable Development and Tourism, Branimir Gvozdenovic, has since announced in a television interview that the government is in contact with Qatari Diar in an attempt to retain the investor.

There are "outstanding issues" that could jeopardise the project, Gvozdenovic admitted on Television of Montenegro, MINA news agency reported. However, the ministries of finance and tourism are working to resolve potential problems related to land ownership. Beyond Horizons is not the first high-profile project in Montenegro to fall into difficulties recently. Earlier this year, Podgorica pulled the plug on a contract with Boka Group, after the company failed to meet its deadline to start construction of an 18-hole golf course and luxury resort.

There are also rumours of delays at a joint project launched by Montenegro and Azerbaijan to build a €500m resort at Kumbor, a former naval base on the Adriatic coast. Azerbaijani state oil company SOCAR and property developer Azmont Investments announced in March that work would finish in 2016.

Montenegro has become a hotspot for real estate investment, especially from Russian investors, in the last decade. The inflow of Russian investors and tourists to Montenegro's Adriatic coast since the 2000s has seen the country dubbed "Moscow on Sea". Even after Montenegro joined EU sanctions against Russia, Russians have continued to be the largest group of holidaymakers in Montenegro, accounting for 33.6% of overnight stays in the country in July, despite fears of a slowdown. This is highly important to Montenegro where tourism accounts for around 20% of GDP.

However, Podgorica is still anticipating a hit to the economy this year, after the country was included in a Russian ban on imports of numerous agricultural products from EU and other western countries announced in August. Montenegro has been included in the ban despite its historically close relations with Russia, as Podgorica - which hopes to become an EU member - opted to join sanctions imposed by the EU over Russia's annexation of the Crimea.

Montenegro's Ministry of Foreign Affairs and European Integration said in an Read more August 8 statement that it "voices regret" over Moscow's decision to impose sanctions. "[A]t the same time reiterating that aligning with the EU decisions is in line with the pursuance of foreign policy priorities as well as the respect for principles and values which Montenegro upholds in international relations, and has not at any moment been anti-Russian in nature," statement adds.

The history of the investment by a subsidiary of Oleg Deripaska's En+ Group into Montenegro's largest industrial company Kombinat Aluminijuma Podgorica (KAP) has also helped to sour relations with Russia. The plant has for several years been the subject of a bitter dispute between En+ subsidiary CEAC and the Montenegrin government. Overall, economic growth in Montenegro is expected to slow slightly to 2.8% this year, according to the International Monetary Fund (IMF). In the first half of this year, Montenegro's trade deficit reached a six-year high of €834.3m, with exports dropping 21.8% to just €178m due to falling exports of aluminum, electricity and steel, while imports stood at €1.02bn, according to the state statistics office.